Photo of Kieran Moloney, Bank of America Merrill Lynch and Graham Kendall, Pall Corporation.

With over 80,000 intracompany transactions each month on over 18 active currencies, Pall Corporation looked to a four-way partnership to deliver its best of breed multi-currency netting system.

Pall Corporation finds four-way partnering delivers the best of all worlds in this multi-currency netting challenge

The challenge

Pall Corporation (Pall) has over 80,000 intracompany transactions each month on over 18 active currencies. Pall had been enduring a number of inefficiencies with its existing multi-currency netting system, including funding, FX execution and reconciliation.

One key problem was that Pall was debiting its Bank of America Merrill Lynch (BofAML) cash management accounts to fund the netting activity with a European bank, which was then settled back to BofAML after the netting was complete. This movement of funds between institutions created a level of operational risk that proved to be unnecessary.

A second issue was the lack of transparency around FX rates used in the netting process each month. Pall felt there was value being left on the table by not having a clear and detailed view into the applied FX rates. Lastly, from a reconciliation standpoint, the number of invoices involved and the lack of FX data made reconciling each netting cycle a burden on their internal resources.

Mindful of Pall’s lean treasury approach, any solution had to be outsourced. BofAML was also cognisant of Pall’s unique business model, so the solution had to be able to support high volumes.

The solution

After a roundtable at Pall’s offices in Long Island, New York, the design of the new structure, mindful of Pall’s lean treasury team, was discussed with external partners, and it was clear from the beginning that it held the promise of considerable efficiency gains from straight through processing (STP), transparency, as well as cost savings throughout.

The answer was a three-way collaboration between BofAML, Centralis (a provider of treasury outsourcing services), and Coprocess (a provider of multi-currency netting technology), all of them brought together by BofAML within its CashPro® system.

Centralis would offer the back office platform through which the multi-currency netting would be run. This meant that the outsourced service provider would be shouldering the administrative burden that would otherwise fall on Pall. Coprocess’ netting technology, which is closely integrated within CashPro®, also handles the actual netting.

FX rates used in those trades are transparent and guaranteed by BofAML for a fixed period. This allows Centralis to calculate final net positions using an executable FX rate, then trade the positions derived at that same rate so there are no residual amounts to be booked or reconciled.

Leveraging this FX solution, Pall sees significant cost savings and gets to zero after each netting cycle.

Best practice and innovation

Working closely with its providers, Pall’s team has engineered a netting solution which improves on the previous system in all the key areas of speed, efficiency, risk and cost.

The in-depth roundtable, which helped build the solution, was a key part of this success and is symbolic of the co-operative nature of the entire project. Because of this synergistic approach between partners, Pall has streamlined its netting cycle each month, which has resulted in meaningful cost savings.

This solution points the way to the future of treasury’s relationships with its service providers, using the right partners in the right combinations to deliver precisely the right result for the business.

The multi-currency netting solution that is now in place was only made possible by the open, four-way co-operation between a corporate, a bank, a treasury outsourcer, and a fintech. They have delivered a tailored solution to an FX problem which has reduced risk and saved time and money.

This innovative approach allows the corporate client to benefit from ‘best of breed’ solutions to multi-currency netting.

Key benefits

• Full transparency on FX rates providing significant cost and control improvements.
• A more transparent netting cycle.
• Rationalisation of costs.
• Streamlining of FX execution and post-cycle reconciliation.
• Reduction of overall operational risk.

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